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Announcement:

Moody’s changes outlook on Korean life insurance industry to negative as low interest rates challenge profitability

 The document has been translated in other languages

01 April 2020


Hong Kong , April 1, 2020

• Coronavirus-related disruptions are adding risk to weakening economy, and will keep interest rates low

• Lower-for-longer interest rates will encourage insurers to take higher asset risk

Moody's Investors Service has changed its outlook for the Korean life insurance sector to negative from stable, as lower-for-longer interest rates are weighing on profitability and raising asset risk.

"The disruption caused by the coronavirus is adding risk to an already weak economy and will keep interest rates low over the next 12-18 months, in turn widening negative spreads for life insurers as investment returns decline," says Young Kim, a Moody's Analyst.

Average negative spreads for life insurers widened to 0.85% in the first half of 2019 from 0.69% the prior year, as average investment yields fell to a new low of 3.4%.

"The industry's decreasing reliance on savings products will eventually improve underwriting gains, but a concurrent fall in premium volumes together with a weak economy will strain premium growth over the next 12-18 month," adds Kim.

Accordingly, competition will likely remain intense, weakening the industry's pricing power and underwriting profit.

Moody's expects profitability will remain weak in 2020 given low investment returns and high loss ratios on health and medical policies. The coronavirus outbreak has added downside risk not just in terms of a potential increase in claims, but also by disrupting insurers' operations and through financial market fluctuations.

Asset risk is also rising as the low interest rates are incentivizing insurers to invest in higher-risk assets.

Subscribers can access the report "Life Insurers – Korea: Outlook negative with low rates to weaken profitability and raise asset risk" at:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206943

For more research and insight on the coronavirus (COVID-19) outbreak, please see moodys.com/coronavirus.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Young Kim
Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Sally Yim, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

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